Intangible Amortization For Palmiero Company
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Intangible Amortization For Palmiero Company
a) Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2010. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2010. During 2012, Palmeiro determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2012?
b) Palmiero bought a franchise from Dougherty Co. on January 1, 2011, for $350,000. The carrying amount of the franchise on Dougherty's books on January 1, 2011 was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Palmiero must enter a competitive bidding at the end of 2020, it is unlikely that the franhchise will be retained beyond 2020. What amount should be amortized for the year ended December 31, 2012?
c) On January 1, 2010, Palmiero incurred organization costs of $275,000. What amount of organization expense should be reported in 2012?
d) Palmiero purchased the license for distribution of a popular consumer product on January 1, 2012, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Palmiero can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2012?
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This solution provides a step-by-step analysis of what amounts of intangible amortization should be reported for Palmiero Company.
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a.) The amount that should be reported in the balance sheet for the patent, net of accumulated amortization, on 12-31-12 is $900,000, net of $600,000 accumulated amortization based on the following:
Amortization for 2010 and 2011 = 1,500,000 / 10 years * 2 = 300,000
2012 amortization 1,500,000 - 300,000 / ...
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